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A Cournot–Nash–Bertrand game theory model of a service-oriented Internet with price and quality competition among network transport providers

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  • Anna Nagurney
  • Tilman Wolf

Abstract

This paper develops a game theory model of a service-oriented Internet in which profit-maximizing service providers provide substitutable (but not identical) services and compete with the quantities of services in a Cournot–Nash manner, whereas the network transport providers, which transport the services to the users at the demand markets, and are also profit-maximizers, compete with prices in Bertrand fashion and on quality. The consumers respond to the composition of service and network provision through the demand price functions, which are both quantity and quality dependent. We derive the governing equilibrium conditions of the integrated game and show that it satisfies a variational inequality problem. We then describe the underlying dynamics, and provide some qualitative properties, including stability analysis. The proposed algorithmic scheme tracks, in discrete-time, the dynamic evolution of the service volumes, quality levels, and the prices until an approximation of a stationary point (within the desired convergence tolerance) is achieved. Numerical examples demonstrate the modeling and computational framework. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Anna Nagurney & Tilman Wolf, 2014. "A Cournot–Nash–Bertrand game theory model of a service-oriented Internet with price and quality competition among network transport providers," Computational Management Science, Springer, vol. 11(4), pages 475-502, October.
    • Handle: RePEc:spr:comgts:v:11:y:2014:i:4:p:475-502
    DOI: 10.1007/s10287-013-0183-5
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    References listed on IDEAS

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    1. Nagurney, Anna & Dupuis, Paul & Zhang, Ding, 1994. "A Dynamical Systems Approach for Network Oligopolies and Variational Inequalities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 28(3), pages 263-283, September.
    2. Anna Nagurney, 2010. "Formulation and analysis of horizontal mergers among oligopolistic firms with insights into the merger paradox: a supply chain network perspective," Computational Management Science, Springer, vol. 7(4), pages 377-406, October.
    3. Cruz, Jose M., 2008. "Dynamics of supply chain networks with corporate social responsibility through integrated environmental decision-making," European Journal of Operational Research, Elsevier, vol. 184(3), pages 1005-1031, February.
    4. Nagurney, Anna & Takayama, Takashi & Zhang, Ding, 1995. "Massively parallel computation of spatial price equilibrium problems as dynamical systems," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 3-37.
    5. Dafermos, Stella & Nagurney, Anna, 1987. "Oligopolistic and competitive behavior of spatially separated markets," Regional Science and Urban Economics, Elsevier, vol. 17(2), pages 245-254.
    6. Anna Nagurney & Dong Li & Tilman Wolf & Sara Saberi, 2013. "A network economic game theory model of a service-oriented internet with choices and quality competition," Netnomics, Springer, vol. 14(1), pages 1-25, November.
    7. Anna Nagurney, 2006. "Supply Chain Network Economics," Books, Edward Elgar Publishing, number 4242.
    8. Lee McKnight & Joseph P. Bailey, 1997. "Global Internet Economics," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
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    Cited by:

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    2. Yongtao Peng & Bohai Chen & Eleonora Veglianti, 2022. "Platform Service Supply Chain Network Equilibrium Model with Data Empowerment," Sustainability, MDPI, vol. 14(9), pages 1-21, April.
    3. Sonja Brangewitz & Claus-Jochen Haake & Philipp Moehlmeier, 2015. "Strategic Formation of Customer Relationship Networks," Working Papers CIE 91, Paderborn University, CIE Center for International Economics.
    4. Nagurney, Anna & Besik, Deniz & Li, Dong, 2019. "Strict quotas or tariffs? Implications for product quality and consumer welfare in differentiated product supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 129(C), pages 136-161.

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